‘Too Big to Fail’ Benefits Face Congressional Watchdog Scrutiny

By Cheyenne Hopkins -
Jan 2, 2013

U.S. banks’ benefits from being “too
big to fail” will be examined by congressional watchdogs in
response to a bipartisan request from senators who say the
government hasn’t done enough to prevent future bailouts.

Vitter and Brown made the request that the GAO look at bank
holding companies with assets more than $500 billion after
leaders in the Republican-controlled House refused to take up
their Senate bill, which passed unanimously.

“Though Congress has enacted financial sector reforms that
its supporters, both in Congress and the administration,
intended to mitigate the TBTF problem, we are concerned that
these measures may not be sufficient to eliminate government
support,” Vitter and Brown wrote in their letter to the GAO.

Lawmakers and regulators have said that Dodd-Frank, the 2010
measure enacted in response to the worst financial crisis since
the Great Depression, ended too-big-to-fail by creating ways to
unwind complex banks without taxpayer assistance.

The study sought by Vitter and Brown would look at whether
the pricing of the banks’ assets relative to their risk profile
results in a perception that they would get bailouts if needed,
whether they get favorable funding as a result of increased
credit ratings based on the view that they are too big to fail
and how they benefit from access to the Federal Reserve’s
discount window.

Nine systemically important banks including JPMorgan,
Citigroup and Bank of America got a total of $125 billion in
taxpayer aid from the Troubled Asset Relief Program after a
credit freeze following the September 2008 collapse of Lehman
Brothers Holdings Inc. Bank of America and Citigroup received
additional bailouts after the initial TARP funding.